Almost everyone agrees that foreclosures are not in the best interest of anyone. However, a solution to the elevated number of mortgage delinquencies is complex. Many mortgage loans are packaged and sold as securities, and this limits the flexibility of the lender to restructure the loan terms.

The latest foreclosure statistics from RealtyTrac Inc. show that foreclosure filings rose 7% from Feb to Mar. Of the 149,000 filings posted nationwide in Mar, five states – CA, FL, TX, MI, and OH – accounted for half the total. The Feb number was down 4% from Jan but up 12% from Jan 2006. (RealtyTrac provides a “Heat Map” that shows the relative foreclosure activity across the U.S.)

Solutions

Can anything be done to stave off a rise in foreclosures? Most politicians, Democrat and Replublican, agree that a federal bailout of delinquent mortgages is not the answer.

The mortgage industry has responded with some creative solutions that will provide flexibility and allow borrowers to rework the terms of their mortgages. These initiatives come from a broad spectrum of players in the mortgage market.

FannieMae, the largest purchaser of home mortgages, is rolling out the “HomeStay” program, which will relax underwriting standards to help refinance homeowners who are facing payment shock due to resetting adjustable rate mortgages (ARMs). Fannie will overlook unpaid bills on borrowers’ credit reports and offer 40-year terms to lower payments. Fannie Mae CEO Daniel Mudd said about 1.5 subprime borrowers could qualify in the next year to refinance under the program.

FreddieMac, the second largest purchaser, is developing loan products for subprime borrowers that will limit payment shock by offering reduced margins, longer reset periods, and longer fixed-rate terms. Freddie expects to roll out the products by midsummer. Freddie Mac CEO Richard Syron said the company will purchase $20 billion in loans to help subprime borrowers refinance into more affordable mortgages.

The Mortgage Bankers Association (MBA) has partnered with NeighborWorks America, a national nonprofit organization, to help borrowers in danger of foreclosure stay in their homes. The partnership will support a national campaign that links homeowners to free counseling and establishes foreclosure intervention programs in cities with high rates of foreclosure.

EMC Mortgage has created the “Mod Squad,” a 50-member team of loan modification experts that creates custom solutions for borrowers who no longer can afford their mortgages. The team reaches out to individual EMC borrowers, publicizing their work through consumer and credit counseling organizations and educational meetings in cities where delinquencies are rising. The object is to search for changes in rates and terms that will permit the borrowers to remain in their homes, pay down their loans, and avoid foreclosure.

In an effort to help WaMu borrowers with subprime mortgages avoid foreclosure, Washington Mutual has committed to refinance up to $2 billion in subprime loans at discounted interest rates. The company said, “WaMu subprime borrowers who remain current on their existing loans and anticipate pending payment increases may apply for new discounted fixed-rate loans.”

All these solutions have been announced in the last few weeks, and it is likely that others will appear in the coming weeks. If you are having trouble managing your mortgage payment, the bottom line is contact your lender or one of the organizations offering free homeowner counseling, such as the Homeownership Preservation Foundation. Alternatives are available, and people are available to help.